Which of the Following Statements Explains Why Monopolies Weaken the Functioning

question 189

Multiple Choice

Which of the following statements explains why monopolies weaken the functioning of the invisible hand?

• A) A monopoly is a price-taker.
• B) The quantity produced by a monopoly is too low.
• C) A monopolist faces an upward-sloping demand curve.
• D) A monopolist sets the price of its good below marginal costs.

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Definitions:

Moral Hazard

The situation where one party takes risks because they know they will not bear the full consequences of their actions, often due to asymmetric information or contracts.

Supply Curve

A visual model that illustrates the association between the pricing of goods and their supply quantity.

Diversification

Reducing risk by investing in several different things, so that the possible losses are independent events.

Pooling

A strong form of diversification in which an investor takes a small share of the risk in many independent events, so the payoff has very little total overall risk.